FEBRUARY 12 2016

Angus Foulis, Saleem Bahaj, BoE: Uncertainty is no excuse for not using macroprudential tools. These policy tools have not been used systemically in the past, so their impact and the FPC’s reaction function remain unclear. Moreover, in contrast to monetary policy, where price stability can be judged against inflation, the objective of macroprudential policymakers – the stability of the financial system – is inherently unobservable. Thus macroprudential policymakers face a high degree of uncertainty over the impact and effectiveness of their tools and a target variable they cannot perfectly observe.

Eugenio Cerutti, Stijn Claessens, VOX: The use and effectiveness of macroprudential policies: New evidence. Macroprudential policies are meant to reduce procyclicality in financial markets and associated systemic risks. However, empirical evidence on which policies are most effective is still preliminary and inconclusive. This column documents the use of macroprudential policies by a large set of countries over an extended period, and covering many instruments. It shows which policies are most effective in reducing the growth rates of overall credit and household and corporate sector credit, and explores differences across countries, degrees of avoidance, and whether policies work better during booms or busts.

Glenn D. Rudebusch, FED San Fransisco: Will the Economic Recovery Die of Old Age? Is the current recovery more likely to end because it’s lasted so long? Have various imbalances and rigidities accumulated to make the economy frailer and more susceptible to a recessionary shock? Recent history suggests the answer is no. Instead, a long recovery appears no more likely to end than a short one. Like Peter Pan, recoveries appear to never grow old.

Mathieu Coutteniery et al, University of Lausanne: The Violent Legacy of Conflict: Evidence on Asylum Seekers, Crimes and Public Policy in Switzerland. We first document that immigrants originating from countries with war history are more crime prone. Using a precise measure of individual war victimization, we find that the effect remains strong and significant, even when controlling for country-of-origin, times arrival year, fixed effects, as well as canton times year fixed effects. Cohorts exposed to civil conflicts/mass killings during childhood are on average 40 percent more prone to violent crimes than their co-nationals born after the conflict. Using dyadic data on both the origin of the perpetrator and the victims of all crimes committed during this period in Switzerland, we are able to say more about potential mechanisms at work. Further, we display external validity by replicating the findings on the violent legacy of conflict exposure for all Swiss immigrants, which account for more than a fifth of Swiss population.

Bob Davis, WSJ: Immigrants Push Down Wages for Low-Income Workers—But How Much? One of the reasons lower-income workers have taken such a hit over the past few decades is because of illegal immigration. But how much of a hit is a matter of great debate among economists. Harvard immigration specialist George Borjas finds that during the 1980s and 1990s, low-skilled immigration reduced the wages of U.S. born high-school dropouts by about 10%.

Andrea Albanese, Bart Cockx, Yannick Thuy, IZA: Working Time Reductions at the End of the Career: Do They Prolong the Time Spent in Employment? In this paper we study the effects on the survival rate in employment of a scheme that facilitates gradual retirement through working time reductions. We use information on the entire labour market career and other observables to control for selection and take dynamic treatment assignment into account. We also estimate a competing risks model considering different (possibly selective) pathways to early retirement. We find that participation in the scheme initially prolongs employment, as participants keep accumulating full pension rights. However, as participants become eligible for early retirement subsequently, these larger financial incentives induce them to leave the labour force prematurely. These adverse incentives are stronger for individuals who reduce their working time most. After two (four) years for men (women), the positive effects reverse. The more favourable effect for women is likely a consequence of their lower opportunities to enter early retirement. The gradual retirement scheme fails the cost-benefit test.

Catarina Saraiva, Michelle Jamrisko, Bloomberg:  These Are the World's Most Miserable Economies.. The ranking of 63 economies is compiled by adding a country's jobless rate and inflation, a long-standing calculation in which a higher score indicates more misery. Venezuela's 159.7 tally for the 2016 misery index done by Bloomberg quadruples the next-worst ranking Argentina.